ITAR and U.S. Export Controls

Transcription

1 ITAR and U.S. Export Controls December 23, 2009 Thomas B. McVey Williams Mullen Washington, DC

2 U.S. Export Control Laws ITAR - International Traffic In Arms Regulations Export Administration Regulations U.S. Sanctions Laws 2

3 Four U.S. Agencies Control Exports State Dept s Directorate of Defense Trade Controls (DDTC) controls defense articles, defense services, and related technical data, including most spacerelated articles - ITAR. Commerce Dept s Bureau of Industry and Security (BIS) controls dual-use items - EAR. Treasury Dept s Office of Foreign Assets Control (OFAC) oversees embargo and sanction lists - OFAC regulations. Homeland Security Dept s U.S. Customs and Border Protection enforces all exports at U.S. borders. 3

4 International Traffic In Arms Regulations (ITAR) Enabling statute: Arms Export Control Act Regulations - International Traffic In Arms Regulations ( ITAR ) Department of State Directorate of Defense Trade Controls List of Controlled Products - U.S. Munitions List Controls Military Items (And Some Dual-Use Items) Broad scope encompassing effectively all items originally developed for military use 4

5 U.S. Munitions List (USML) Category 1: Firearms, weapons Category 2: Guns and armaments Category 3: Ammunition, ordinance Category 4: Launch vehicles, missiles, rockets Category 5: Explosives, incendiary agents Category 6: Naval vessels Category 7: Military vehicles Category 8: Aircraft and equipment Category 9: Military training services, equipment Category 10: Protective personnel equipment and shelters Category 11: Military electronics Category 12: Optical and guidance control equipment Category 13: Auxiliary equipment (cameras, encryption, camouflage) Category 14: Toxicological, chemical, biological agents, protective equipment Category 15: Space systems and equipment Category 16: Nuclear weapons, technology Category 17: Classified technical data and services Category 18: Directed energy weapons Category 19: Reserved Category 20: Oceanographic equipment Category 21: Other items designed or adapted for military use 5

6 Export of Technology and Software Methods for exporting technology and software: Send it abroad (e.g., send disk in the mail) Go abroad and talk about it Electronic transmissions, Phone call, fax Computer network Foreign national comes to U.S. and has access to it 6

7 ITAR Controls Defense Services Services related to USML items are controlled Defensive Services Requires Technology Assistance Agreement (TAA) Filed with and approved by DDTC Signed by foreign recipient of the Defense Services 7

8 ITAR CONTROLS Items subject to ITAR Controls: Articles (physical items) Software Technology Services 8

9 USML Category 21 Category XXI Miscellaneous Articles (a) Any article not specifically enumerated in the other categories of the U.S. Munitions List which has substantial military applicability and which has been specifically designed, developed, configured, adapted, or modified for military purposes. (b) Technical data (as defined in of this subchapter) and defense services (as defined in of this subchapter) directly related to the defense articles enumerated in paragraph (a) of this category. 9

10 Criteria For Inclusion on USML Was product originally designed or developed for military use? Was product developed to military specifications? Was product developed with special military characteristics (e.g. radiation hardening, ballistic protection, hard points, thermal or infrared signature reduction capability, surveillance or intelligence gathering capabilities)? Was product modified for military purpose? Relevant question: Current use military versus commercial (what it is used for, now what it can be used for) Relevant question: Was government funding used to develop product for military application? 10

11 Recent Developments State Department Aggressive expansion of items covered under USML Items specified on the U.S. Munitions List Any item originally developed for military use Civilian product adapted for military use 11

12 Commodity Jurisdiction Requests Procedure for DDTC to determine if items is on U.S. Munitions List Binding, written response Can also be used for removal of item from USML if predominant civil application Proceed with caution 12

13 DDTC Registration Parties that produce items on the U.S. Munitions List are required to register with the Directorate of Defense Trade Controls as a Munitions Manufacturer This is even if the company does not export any products And even if the company does not disclose any restricted technologies to foreign nationals Form DS

14 ITAR Submissions Export License DSP-5 Technology Assistance Agreement (TAA) Manufacturing License Agreement (MLA) Warehouse And Distribution Agreements (WDA) Registration Form DS

15 Recordkeeping Requirements Mandatory requirement to maintain records of all export transactions for 5 year period Covers paper, electronic and other media 15

16 ITAR Other Issues Temporary imports Significant Military Equipment (SME) Broker registration and regulation Political contributions Debarred Party List Recordkeeping requirements 16

17 Penalties For Violations Criminal Sanctions up to 10 years imprisonment Fines: $1,000,000 per violation Press release Debarment For criminal cases Justice Department can prosecute Company Officers and Directors Employees in their individual capacities 17

18 Major Export Compliance Cases ITT Corporation - $128,000,000 combined civil and criminal penalties for ITAR violations related to night-vision products and technology Analytical Methods, Inc. - $500,000 General Motors/General Dynamics - $20,000,000 penalties for export control violations 18

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20 SENTENCING OF COMPANY FOR EFFORTS TO TRADE WITH IRAN U.S. Department of Justice United States Attorney's Office District of Columbia (202) For Immediate Release: July 31, 2008 Contact - BIS Public Affairs Raleigh, North Carolina - United States Attorney George E.B. Holding announced today that on Monday July 28, 2008, Allied Telesis Labs, Inc. (ATL), was sentenced in United States District Court in Elizabeth City to a $500,000 criminal fine and was placed on probation for two years for violating United States law regarding conducting business with Iran. ATL was successfully engaged in the design of telecommunication equipment and systems including high capacity Multiservice Access Platforms (imaps) and related items capable of routing a large volume of messages/information/data. ATL s guilty plea acknowledged that the corporation conspired with another to trade with the Islamic Republic of Iran in violation of the law. Specifically, ATL and its related corporate entities conspired to land and execute a $95,000,000 contract with the Iranian Information Technology Company (IRITCO) to rebuild and upgrade the telecommunications systems of approximately 20 Iranian cities, including Tehran. The imaps developed here in the Triangle were to be a central component of this system. Preparation for the execution of the contract went as far as the manufacture of approximately $2 million worth of imaps at ATKK facilities in Singapore. The contract negotiations eventually collapsed, the telecommunications system was not installed and the imaps were sold elsewhere at a loss. Mr. Holding noted the importance of the case: Every American is aware of the sensitive nature of the United States relationship with Iran. That relationship is a central focus of our foreign policy and the work of our Government. The International Emergency Economic Powers Act allows the President to regulate the conduct of business internationally under certain circumstances, a step which was taken with regard to Iran. When the President imposes these types of authorized restrictions, it is incumbent on all citizens, including our corporate citizens, to adhere to those regulations and to follow the strict letter of the law. Only thencan we be confident that our country speaks with one voice in our relationships with our international friends and foes. The plea of guilty and the sentence in this case should act as a reminder to our business community of the seriousness with which the Department of Justice takes this issue. The case was investigated by the United States Department of Commerce. Assistant United States Attorney John Bowler represented the United States in federal court. 20

21 HOUSTON FIRM SETTLES EXPORT ALLEGATIONS U.S. Department of Commerce Bureau of Industry and Security For Immediate Release: May 1, 2009 Contact - BIS Public Affairs WASHINGTON, D.C. -The Commerce Department's Bureau of Industry and Security (BIS) announced today that B.J. Services Company, a provider of specialty products and services to the oil and gas industries, has agreed to pay an $800,000 civil penalty to settle allegations that it exported certain butterfly and check valves in violation of the Export Administration Regulations. B.J. Services Company is headquartered in Houston, Texas. "An effective compliance program requires continuous oversight and revision," said Kevin Delli-Colli, the Acting Assistant Secretary of Commerce for Export Enforcement. "Failing to keep pace with changing business practices can result in numerous violations and degrade our system of export controls." The allegations involved 63 unlicensed exports to a variety of countries of various service parts controlled under Export Commodity Classification Number 2B350 for reasons of chemical and biological weapons proliferation, specifically, Teflon-coated valves. The violations occurred between 2003 and The company voluntarily disclosed the violations, and cooperated fully with the investigation. Acting Assistant Secretary Delli-Colli praised the BIS Dallas Field Office for its outstanding work on this case. BIS controls exports and re-exports of dual-use commodities, technology, and software for reasons of national security, missile technology, nuclear non-proliferation, chemical and biological weapons non-proliferation, crime control, regional stability and foreign policy. Criminal penalties and administrative sanctions can be imposed for violations of the Export Administration Regulations. For more information, please visit 21

22 Summary Determine if your product is on the U.S. Munitions List If yes, must obtain an export license to export the product If product is on the USML, software and technology related to the product is also on the list Must obtain export license to export the software and technology Cannot disclose software and technology to foreign nationals in the U.S. without license If your product is on the USML, services related to the product are controlled Cannot perform services overseas without a license authority (TAA) 22

23 Summary (cont.) If product on USML, must register with DDTC Even if you will not export the product If obtain export license, must comply with the terms, conditions and provisos on the license Must comply with other ITAR requirements: brokering, registration, political contributions, recordkeeping, other 23

24 Export Administration Regulations Enabling Statute: Export Administration Act (expired), International Emergency Economic Powers Act Regulations: Export Administration Regulations (EAR) Department of Commerce Bureau of Industry and Security List of Controlled Products Commerce Control List Controls Dual-Use Items 24

25 Commerce Control List Examples of Products Covered - encryption - computers, networking - aerospace devices - lasers - high performance - chemicals materials - power generation - telecom equipment - police equipment - high strength fibers - electronics - nuclear industry product - sensors - high performance pumps, - electronics generators, processing - machine tools equipment - fingerprint/biometrics -others 25

26 Commerce Control List Categories Category 0 Nuclear Materials, Facilities and Equipment, Miscellaneous Items Category 1 Materials, Chemicals, Microorganisms and Toxins Category 2 Materials Processing Category 3 Electronics Category 4 Computers Category 5 Telecommunications And Information Security Category 6 Sensors And Lasers Category 7 Navigation And Avionics Category 8 Marine Category 9 Propulsion Systems, Space Vehicles And Related Equipment Supplement General Technology And Software Note Supplement Statement of Understanding 26

27 EAR Controls Technology and Software Software and technology related to defense articles are also controlled Require export license, re-export authority, etc. Deemed export rule applies, even to U.S. company employees 27

28 Requirements for all exports (even if product is not on CCL): Recordkeeping requirements 15 CFR 762 Denied persons list 15 CFR 764 Shipment documentation 15 CFR

29 U.S. Sanctions Programs Office of Foreign Assets Control (Department of the Treasury) Prohibition against dealing with targeted list of countries Prohibition against dealing with targeted list of entities and parties 29

30 Sanctions Programs - Summary OFAC Country Programs Balkans Belarus Burma Cote D Ivoire (Ivory Coast) Cuba Democratic Republic of the Congo Iran Iraq Liberia (Former Liberian Regime of Charles Taylor) North Korea Sudan Syria Zimbabwe 30 OFAC Non-Country-Specific Programs Anti-terrorism Sanctions Program Non-Proliferation Sanctions Program Narcotics Trafficking Sanctions Program Diamond Trading Sanctions Program Persons Undermining the Sovereignty of Lebanon or Its Democratic Processes and Institutions

31 U.S. Sanctions Programs SDN s Prohibition against dealing with Specially Designated Nationals anywhere in the world 3,000 Parties 15 CFR Chapter 5, App. A-C 31

32 The OFAC SDN List 32

33 Can I sell something to Osama? 33

34 Exports to Affiliates U.S. export laws also apply in exports to: Foreign subsidiaries Joint venture partners Distributors Suppliers and subcontractors Inter-company transferees in foreign offices Supply chain partners 34

35 Electronic Communications Intra-company communications with foreign offices Communications with foreign national employees in the U.S. Communications with foreign customers, distributors, subcontractors, suppliers, joint venture partners 35

36 Outsourcing Are you sending controlled technologies to foreign parties: specifications for components to be manufactured abroad? object code for software to be developed abroad? Are foreign firms performing IT integration services for systems subject to export restrictions? Do foreign nationals have electronic access to your IT system? 36

37 Electronic Commerce Are items transferred subject to export restriction? Are recipients in an embargoed country? Are recipients listed on Denied Persons List or Specially Designated Nationals List? Controls on subsequent re-transfer? 37

38 Computer Networks Certain foreign national employees not permitted to have access to controlled software and technologies Access to electronic engineering drawings, CAD/CAM Proprietary technologies stored in Word files Software, source code Training materials, instruction manuals 38

39 Mergers and Acquisitions In the Matter of: Sigma-Aldrich Business Holdings, Inc. (Case No. 01-BXA-06) If U.S. company acquires target company through purchase of assets, acquirer can still be liable for target company s export control violations. 39

40 Compliance Strategy Classification review all of your company s products to see if they are listed on: U.S. Munitions List Commerce Control List End Use Based Control (15 CFR Part 744) Application Apply as required for DDTC export licenses (DSP 5) BIS export licenses TAA s, MLA s Warehouse Distribution Agreements Re-export authority Compliance Program internal company compliance procedures 40

41 Export Compliance Programs Major Components 1. Adopted At Senior Company Level 2. Export Compliance Official 3. Written Policy and Procedures 4. Training 5. List Screening 6. Compliance Audit Procedure 7. Recordkeeping 8. Internal System For Reporting Violations 9. Periodic Updating 10. Penalties for Employees Who Violate Program 41

42 Specific ITAR Compliance Program Components Must provide specifics of organizational structure steps in the compliance process and reporting responsibilities Corporate commitment at the highest level of the organization Identification, receipt and tracking of ITAR controlled items and technical data Procedures for re-exports and retransfers of articles, software and technologies Restricted or prohibited exports, re-exports and transfers Recordkeeping Internal auditing, supervision and reporting Training Procedures if violations are discovered 42

43 Export compliance website Export Compliance Programs Advanced Components Compliance hotline Training videos Interactive training software with records of user activity Automated list tracking Automated recordkeeping 43

44 Export Compliance Programs McVey s High Priority Recommendations Specifics names of responsible persons, titles, organization charts, flow charts specific to your organization Evidence of compliance activities training records, list search results, results of Red Flag due diligence, etc. Risk-based analysis concentrate resources in areas of highest risk Adopted at the highest level of corporate organization 44

45 Mitigation Criteria Checklist Criteria Relevant Evidence for Compliance Program Mitigation 1. Whether the Company has Performed a Meaningful Risk Analysis 2. The Existence of a Formal Written Compliance Program 3. Whether Appropriate Senior Organizational Officials Are Responsible for Overseeing the Export Compliance Program Design Implementation Design Implementation Design Implementation 4. Whether Adequate Training is Provided to Employees 5. Whether the Company Adequately Screens its Customers and Transactions Design Implementation Design Implementation 6. Whether the Company Meets Recordkeeping Requirements 7. The Existence and Operation of an Internal System for Reporting Export Violations Design Implementation Design Implementation 8. The Existence and Results of Internal/External Review or Audits Design Implementation 9. Whether Remedial Activity Has Been Taken in Response to Export Violations Design Implementation 45

46 # v5 Thomas B. McVey 1666 K Street, NW Suite 1200 Washington, DC tmcvey@williamsmullen.com